Appeals Court Allows CFPB Enforcement Action to Continue, But Raises Constitutional Questions About How Agency is Funded

The Court of Appeals for the Fifth Circuit yesterday issued an en banc ruling, allowing the Consumer Financial Protection Bureau to continue an enforcement action against a payday lender that had been challenging the regulator’s constitutionality, while two separate opinions from judges on the panel say that the case against the lender should be dismissed.

A copy of the ruling in the case of CFPB v. All American Check Cashing can be accessed by clicking here.

The defendant was sued by the CFPB back in 2016 for allegedly engaging in unfair, deceptive, and abusive contact, and has been fighting the suit ever since. A panel of judges from the Fifth Circuit ruled back in 2020 that the leadership structure of the CFPB was constitutional, before the Supreme Court issued its ruling in CFPB v. Seila Law that ruled the leadership structure was unconstitutional.

The Supreme Court’s ruling left the Fifth Circuit with no option but to vacate the earlier decision of the three-judge panel and remand the case back to the District Court, where the CFPB could continue its enforcement action against the company. “The time has arrived for the district court to proceed,” the Fifth Circuit wrote in its ruling.

But in a separate opinion, seven judges from the Fifth Circuit, led by Judge Edith H. Jones, argue that the case against All American should be dismissed because not only is the leadership structure of the CFPB unconstitutional, but also how the agency gets its funding.

The CFPB is not subject to the Congressional appropriations process for its budget, like most federal agencies. Instead, it gets its money directly from the Federal Reserve Board, without really needing to publicly disclose how it is using the funds it requests. This insulated process was meant to ensure independence for the Bureau, and not allow Congressional influence over its agenda and priorities.

But such a structure violates the Appropriations Clause of the constitution, Judge Jones wrote.

“The CFPB’s double insulation from Article I appropriations oversight mocks the Constitution’s separation of powers by enabling an executive agency to live on its own in a kingly fashion,” she wrote. “The Framers warned that such an accumulation of powers in a single branch of government would inevitably lead to tyranny. Accordingly, I would reject the CFPB’s novel funding mechanism as contravening the Constitution’s separation of powers. An d because the CFPB funds the instant prosecution using unconstitutional self-funding, I would dismiss the lawsuit.”

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